MRO Demystified - MRO Demystified: Repairing the traditional approaches to MRO spend management...

MRO Demystified - MRO Demystified: Repairing the traditional approaches to MRO spend management Determining
MRO Demystified - MRO Demystified: Repairing the traditional approaches to MRO spend management Determining
MRO Demystified - MRO Demystified: Repairing the traditional approaches to MRO spend management Determining
MRO Demystified - MRO Demystified: Repairing the traditional approaches to MRO spend management Determining
MRO Demystified - MRO Demystified: Repairing the traditional approaches to MRO spend management Determining
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Transcript of MRO Demystified - MRO Demystified: Repairing the traditional approaches to MRO spend management...

  • 1 | sourceoneinc.com

    MRO Demystified Repairing the traditional approaches to MRO spend management

  • 2 | sourceoneinc.com

    MRO

    MRO (Maintenance, Repair, and Operations) is

    perhaps the broadest spend category any

    organization must contend with. Unsurprisingly it’s

    also among the most essential and most

    complicated.

    Though organizations will differ in what they define

    as MRO spend, the category effectively includes

    anything necessary for operating a manufacturing or

    distribution facility. Effective MRO purchasing and

    spend management is often the difference between

    operating as a well-oiled machine and suffering

    through considerable lost savings.

    Ask someone on the shop floor how important their

    MRO suppliers are and they’ll answer emphatically.

    Surely, they’ve observed the costs of broken

    machinery, delayed deliveries, or outdated tools

    firsthand. Folks at the executive level understand

    the importance of MRO spend just as well.

    Recognizing the importance of the category and

    managing it effectively, however, are two very

    different things.

    When MRO Becomes Unmanageable

    MRO challenges and confuses Procurement teams

    for a number of reasons including:

     The diversity of products and services within the

    category.

     The diversity and geographic scope of the supply

    base.

     Poor spend visibility at the SKU level.

    Certain complications are inherent to the category

    and largely unavoidable. Broken machinery, for

    example, often forces organizations to make

    sudden, unplanned purchases. It is unexpected

    hiccups like these that lead many companies to take

    a decentralized approach to their MRO spend.

    On paper, this might seem like the most effective

    strategy.

    Taking a decentralized approach to MRO spend

    provides a feeling of security for organizations with

    numerous facilities. Purchasing on a site-by-site, day

    -to-day basis they can rest assured that plant

    managers are ready to make whatever emergency

    purchases are necessary. Unfortunately, this sense

    of security is usually accompanied by a slew of

    additional complications.

    Making sense of Maintenance,

    Repair, & Operations

    MRO is a broadly defined spend area containing numerous individual subcategories. To complicate matters further, many of these subcategories straddle the line between MRO and other areas like Facilities and Fleet Management.

    These include:

     Bolts  Bearings  Cleaning Supplies  Electrical Supplies  Engineering Services  Fasteners  Forklifts  Furniture  Gloves  Industrial Supplies &

    Rentals  Janitorial Services

     Lab Supplies & Services

     Lighting  Material Handling  Packaging  Power Transmission

    Products  Storage  Tools  Welding Supplies &

    Services  & Many More. . .

    MRO Demystified: Repairing the traditional approaches to MRO spend management

  • 3 | sourceoneinc.com

    Determining the Approach Decentralized vs. Centralized Spend

    To Each their Own—A Decentralized Approach

    A decentralized approach to MRO spend typically

    means poor or non-existent lines of communication

    between facilities. Since they’re not working

    together, these individual facilities cannot hope to

    properly leverage their spend or realize maximum

    value from their sourcing activities.

    Multiple sites will often engage different suppliers

    for the exact same products or services. Even when

    they’re leveraging the same providers, organizations

    have a habit of setting up separate purchasing

    accounts for each location. In either situation, data

    integrity suffers, purchasing power diminishes, and

    standardization becomes all but non-existent. As

    this approach becomes a historical precedent,

    organizations will dig themselves deeper and deeper

    into inefficiency and lost savings.

    Alternatively, an organization might leverage a

    single supplier across multiple sites without

    centralizing and standardizing its approach to

    account management. The disparities in pricing and

    service levels could go unnoticed and secretly affect

    the bottom line for extended periods.

    While a decentralized approach welcomes all

    manner of complications, organizations often make

    things more challenging for themselves by settling

    for low-effort, quick-win solutions.

    3 | sourceoneinc.com

    Example: Imagine an organization that

    maintains five warehouses.

    Across the company, each warehouse

    purchases generic steel fasteners which come

    into contact with abrasive chemicals during

    their manufacturing process. One warehouse

    finds that the steel fasteners are of lower

    quality than advertised (316 grade) and thus

    more likely to wear and break down.

    To remedy the issue, this one warehouse

    conducts a search and identifies an alternate

    source of supply offering a significantly better

    product with more stringent quality assurance

    processes at a similar cost to the previous

    generic. They transition to the new supplier and

    experience no further quality issues.

    However, in doing so they forget to tag the

    item in their company-wide system as the

    preferred spec and supplier. The remaining

    warehouses continue to purchase the inferior

    product, unaware of the new source, and they

    continue to experience costly breakdowns.

    MRO Demystified: Repairing the traditional approaches to MRO spend management

  • 4 | sourceoneinc.com

    MRO Demystified: Repairing the traditional approaches to MRO spend management

    Determining the Approach

    (Continued) All for One and One for All - A Centralized Approach

    Perhaps leadership has started to recognize the

    issues with their site-by-site approach to MRO

    purchasing. After conducting a high-level overview

    of historical spend, they’ve learned they engage too

    many suppliers and leave too much spend

    unmanaged.

    The appropriate fix, they determine, is to

    consolidate their spend to a single catch-all MRO

    supplier. Looking to secure savings fast, first

    corporate leaders reach out to distributors to lock-in

    a contract with predefined volume-based discounts

    and incentives. Then, they’ll issue a company-wide

    mandate that all MRO purchases be made through

    their newly selected preferred supplier. This

    supplier will lead the implementation efforts hewing

    closely to the contract terms.

    Like site-by-site purchasing, this can look like an

    easy and advantageous fix, but mismanaged

    approach to centralizing MRO purchasing can prove

    deceptively complicated and inefficient.

    The Proper Solution

    There’s no one-size-fits-all strategy for optimizing

    MRO spend. Devoting time and resources with a

    sole focus on quicks wins is a surefire way to

    experience “quick” and costly losses. While it’s

    tempting to meet complexity with simplicity in

    consolidating MRO spend, the fact is most

    organizations require a hybridized approach to

    realize their goals and maintain efficient operations.

    While attacking immediate cost reduction is always

    a target, overall MRO spend management requires

    long-term vision aligned with the enterprise’s

    needs.

    Example: A distributor might not offer the

    necessary customized products.

    They’ll respond by purchasing them from a

    manufacturer and tacking on a hefty mark-up.

    Corporate leadership might not notice this, but

    site managers certainly will. Over time, this

    frustration can lead to non-compliance and

    overall inefficiency.

    4 | sourceoneinc.com

  • 5 | sourceoneinc.com

    About Source One, a Corcentric company Source One is a top provider of spend management solutions ranging from spend analysis and

    strategic sourcing through category management and Procurement Transformation. Since

    1992, Source One has helped industry leading enterprises optimize their approach to count-

    less indirect spend categories including MRO, Facilities Management, IT & Telecom, Profes-

    sional Services, and more. Serving as an extension of client resources, Source One’s category

    subject matter experts deliver best practices, market insights, tools that drive greater value

    out of the bottom line. To learn more about Source One, a Corcentric company, visit us online

    at: www.sourceoneinc.com.